The Arbitration and Conciliation Act of 1996 (the ‘Act’) was amended by the Amendment Act and the cut-off date for the operation of the Amendment Act was October 23, 2015. One of the principal changes brought about by the Amendment Act was in section 36 of the original legislation. The Amendment Act sought to do away with the provision of an automatic stay on the execution of an award pending the disposal of a section 34 application challenging the award rendered by an arbitral tribunal. The anomaly that arose[1] therefore was in the application of the amended section 36 to a section 34 Application arising out of arbitral proceedings initiated prior to the coming into force of the Amendment Act. Therefore, if the arbitral award was rendered prior to October 23, 2015, and a section 34 Application for setting aside the award was filed after the Amendment came into effect, can the amended section 36 apply to the pending section 34 application under the amended legislation? The Supreme Court was called upon to answer this question on appeal.

Dissecting the Supreme Court’s Reasoning

The reasoning of the Court principally revolved around the interpretation of section 26 of the amended legislation. Section 26 of the Amendment Act modified section 85 of the original Act. Section 85 under the original Act read as follows:

85. Repeal and savings. —

(1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed.

(2) Notwithstanding such repeal, —

(a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force;

(b) all rules made and notifications published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act.

Section 26 in the amended Act reads as follows:

26. Act not to apply to pending arbitral proceedings-Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.

Therefore, the interpretation of the Court dwelt upon the fundamental change in the language of the section and the import of the terms ‘to’ and ‘in relation to’ used therein.

Segregation of Section 26 into Two Distinct Parts and the Application of Expressio Unius

The Latin expression expressio unius est exclusio alterius implies that the mention of one or more things of a class may be regarded as silently excluding all other members of the class.[2] Hence, where specific words are not followed by general words, the things not expressly mentioned are not covered by the Act. Applying this principle, the Court bifurcated section 26 into two parts and reasoned as follows:

– The first limb of Section 26 deals makes a reference to commencement of arbitral proceedings in relation to section 21 of the Act and the language used therein is ‘to’ and not ‘in relation to’. The parties to such an arbitral proceeding have also been given the choice to apply the amended Act or the original Act as the law governing their arbitration;

– The second limb of section 26 however excludes the terms ‘the arbitral proceedings’ and does not include a reference to section 21 of the Act. Additionally, a fundamental departure is also noted from the first limb of section 26 in using the term ‘in relation to’ and not ‘to’.

Upon a conspective reading of section 26, the Court arrived at the conclusion that owing to the clear divide in the operation of the two separate limbs of section 26, the first part must be limited to arbitral proceedings alone and cannot be applicable to court proceedings arising in relation to arbitral proceedings. Reference was drawn to the general scheme of section 21 of the original Act, which specifically dealt with the conduct of arbitral proceedings. Therefore, the reference to section 21 was to limit the application of the same to the proceedings before the tribunal, i.e., from the date of reference to arbitration to the date of termination of proceedings qua section 32 of the Act. The Court also stated that since the conduct of arbitral proceedings was merely a procedural right, the parties were given the choice to adopt the amended Act for the conduct of such proceedings before the tribunal.

On the other hand, the second limb of section 26 makes the operation of the Amendment Act applicable ‘in relation to arbitral proceedings’ commenced on or after the cut-off date. The exclusion of any reference to section 21 by default excluded the operation of this part under the ambit of arbitral proceedings and makes the same squarely applicable to court proceedings arising in relation to such arbitral proceedings.

The Question of Automatic Stay in the Post-Amendment Regime

The Court next dealt with the issue of the effect of the amended section 36 to section 34 applications filed before the cut -off date. Giving retrospective effect to the operation of section 36, the Court held as follows:

– There exists a thin line of difference between enforcement of an arbitral award and execution of an arbitral award. Section 36 deals with the execution of arbitral awards as if they were a decree of the civil court governed under order 21 and order 41 rule 5 of the Civil Procedure Code. It will be interesting to note here that under order 41 rule 5 of the Civil Procedure Code, an appeal does not operate as an automatic stay on the pending lis between the parties. The enforcement of an arbitral award therefore can be said to be a substantive right, but the execution of an award is purely procedural in nature.

– Since execution of a decree is a procedural right, there can be no vested right accrued upon a party to agitate the execution of an award in a certain manner or resist the execution of an award if it is not made in a certain manner. Furthermore, it is an established canon of law that changes in the realm of procedure are by default deemed to retrospective in their operation.

– Court proceedings in relation to arbitral proceedings are mutually exclusive of one another and the existence of such court proceedings cannot imply a mere continuation of the arbitral proceedings. Furthermore, section 36 considers section 34 applications filed prior to the cut-off date since the language of the section considers a section 34 application which ‘has been’ filed prior to the commencement of the Amendment Act.

– Additionally, the Court also noted that the operation of stay by default under the original legislation went against the letter and spirit of the Act in enforcing a robust arbitral mechanism and the provision of automatic stay only served as a clog on the decree holder’s rights to execute the award, subject to meeting the conditions provided under this section. Such a clog could not correspondingly create a right in the judgment debtor to stay the execution of the award and as such was not a substantive right accruing to the judgment debtor.

Obiter

The Court in passing also expressed strong reservations about the proposed Arbitration and Conciliation (Amendment) Bill, 2018, specifically the intended section 87 thereto and urged the Government to reconsider its proposals for the same. Section 87 under the Bill reads as follows:

Unless parties agree otherwise the Amendment Act 2015 shall not apply to (a) Arbitral proceedings which have commenced before the commencement of the Amendment Act of 2015 (b) Court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Amendment Act of 2015 and shall apply only to Arbitral proceedings commenced on or after the commencement of the Amendment Act of 2015 and to court proceedings arising out of or in relation to such Arbitral proceedings.

The Court observed that the implementation of such a section would take the Indian arbitral regime on a regressive path of delayed enforcement and unnecessary clogs on execution of awards and suggested sending a copy of this judgment forthwith to the Law Ministry for reconsidering the said amendment.

Analysis

This judgment clarifies the ambiguities arising from the interpretation of section 26 of the amended Act, by ensuring that section 36 would be retrospective in its application while section 26 would be prospectively applied to arbitral proceedings and court proceedings in relation to arbitration proceedings filed on or after the commencement of the Amendment Act. It however fails to offer clarification on the retrospective nature of section 34 since that question was beyond the scope of reference in the instant matter. In doing so, the Court has effectively created a vacuum regarding other provisions of the Act which might have a retrospective application per se.

The lacunae become even more apparent when one is to consider the amendment to section 34 of the Act and the expanded grounds for setting aside of an arbitral award therein. Had the Court dwelt into the nature of the amendment to the section, i.e. whether it created any substantive rights upon the parties or was merely clarificatory in nature, possible challenges arising out of the same could have been pre-empted right at the inception.

However, mere technicalities aside, this judgment effectively settles the debate persisting around the nature of the amended Act and sets into motion a pro-arbitration precedent which will only provide fillip to India becoming a hub for commercial arbitration.

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